Staff Paper P91-47 November 1991(revised February 1993)

SUSTAINABLE GROWTH IN AGRICULTURAL PRODUCTION:

Poetry, Policy and Science

by

Vernon W. Ruttan

Staff papers are published without a formal review within or the endorsement of theDepartment of Agricultural and Applied Economics.

The University of Minnesota is committed to the policy that all persons shall have equalaccess to its programs, facilities, and employment without regard to race, religion, color,sex, national origin, handicap, age, or veteran status.

m

SUSTAINABLE GROWTH IN AGRICULTURAL PRODUCTION:Poetry, Policy and Science*

Vernon W. Ruttan*”

Contemplation of the world’s disappearing supplies of minerals, forests and otherexhaustible assets has lead to demands for regulation of their exploitation. The feelingthat these products are now too cheap for the good of future generations that they arebeing selfishly exploited at too rapid a rate, and that in consequence of their excessivecheapness they are being produced and consumed wastefully has given rise to theconservation movement (Hotelling, 1931).

In this paper I review the evolution of the sustainability concept. This is followed

by a description of three “classical” systems of sustainable agriculture. None of these

systems were or are capable of generating growth of output consistent with modem rates

of growth in demand. I then turn to three unresolved analytical issues that continue to

divide the conventional resource economics and the sustainable development

communities. In a closing section I argue sustainable growth in agricultural production

should be viewed as a research agenda rather than as a package of practices that is

available to producers whether in developed or developing countries.

When confronted with the task of defining sustainable agriculture one’s natural

inclination is to finesse. David Hopper, formerly World Bank Vice President for the

South Asia Regio~ insisted, “I don’t think I can define it (sustainability) without unduly

*Revision and extension of paper published in Stephen A. Vosti, Thomas Reardon, Winfried von Urff(Editors), A icult r 1 S inabili~ (WashingtorqD,C.: International Food Policy Research Institute, 1991). I am indebted to Syed Ahmad, Randolph Barker,Yassir Islam, Richard Norgaar~ James A. Roumasset, C. Ford Runge, Robert M. Solow, Theodore Graham-Tomasi, and Steve Vosti for comments on an earlier draft of this paper.

●*Vernon W. Ruttan is Regents Professor in the Department of Economics and the Department ofAgricultural and Applied Economics and Adjunct Professor in the Hubert H. Humphrey Institute of PublicAffairs, University of Minnesota.

2

constraining the free flow of my thoughts” (Hopper, 1987, p. 5). Hopper’s inclination to

avoid the issue of definition reflects the fact that sustainability has emerged as an

umbrella under which a

agendas have been able

inconsistent agendas.

large number of movements with widely disparate reform

to march while avoiding confrontation over their often mutually

Definitions of Sustainability

In spite of the advantages of avoiding defining a term which has apparently been

adopted precisely because of its ambiguity it is useful to trace the evolution of the

concept. The term was first advanced in 1980 by the International Union for the

Conservation of Nature and National Resources (IUCN; Lele, 1991). Prior to the mid-

1980s the term had achieved its widest currency among critics of what was viewed as

“industrial” approaches to the process of agricultural development (Harwood, 1990, pp. 3-

19). Proponents had traveled under a number of rhetorical vehicles such as biodynarnic

agriculture, organic agriculture, farming systems, appropriate technology and, more

recently, regenerative and low-input agriculture (Dahlberg, 1991).1

Writing in the early 1980s, Gordon K. Douglass identified three alternative

conceptual approaches to the definition of agricultural sustainability (Douglass, 1984,

pp. 3-29). One group defined sustainability primarily in technical and economic terms -

in terms of the capacity to supply the expanding demand for agricultural commodities on

lSandra Batie regards the concept of sustainable development “as the latest step in along evolution ofpublic concern with respect both to natural resources and to the environment . . . Prior to World War IIthose concerns . . . emphasized technically efficient development of such resources for use as commodities,After World War II, the emphasis shifted to the aesthetic and amenity use of natural resources.” (Batie, 1989,p. 1083).

3

resource economists, the long-term decline in the real prices of agricultural commodities

has represented evidence that the growth of agricultural production has been following a

sustainable path. In contrast a sustained rise in the real prices of agricultural

commodities would be interpreted as raising serious concern about sustainability.

Douglass identified a second group that regards agricultural sustainability

primarily as an ecological question - “for its advocates an agricultural system which

needlessly depletes, pollutes, or disrupts the ecological balance of natural systems is

unsustainable and should be replaced by one which honors the longer-term biophysical

constraints of nature” (Douglass, 1984, p. 2). Among those advancing the ecological

sustainability agenda there is a pervasive view that present population levels are already

too large to be sustained at present levels of per capita consumption (Goodland, 1991).2

A third group traveling under the banner of “alternative agriculture,” places its

primary emphasis on sustaining not just the physical resource base but a broad set of

community values (Committee on the Role of Farming Methods in Modem Production

Agriculture, 1989). This third group draws substantial inspiration from the

agroecological perspective. But it often views conventional science based agriculture as

an assault, not only on the environment, but on rural people and rural communities. Its

adherents take as a major objective the strengthening or revitalization of rural culture

and rural communities guided by the values of stewardship and self-reliance and an

%%is view stems in part from a naive carrying capacity interpretation of the potential productivity ofnatural systems. (Raup, 1%4).

4

integrated or holistic approach to the physical and cultural dimensions of production and

consumption.

By the rnid-1980s the sustainability concept was diffusing rapidly from the confines

of its agro-ecological origins to include the entire development process. The term had

been appropriated by the broader development community. A sampling of the

definitions that have been advanced in support of particular agendas are listed in

Appendix 1. The definition that has achieved the widest currency was that adopted by

the Bruntland Commission:

“Sustainable development is development that meets the needs of the present

without compromising the ability of future generations to meet their own needs.”

(World Commission on Environment and Development, 1987, p. 43).

The Bruntland Commission definition raises the possibility that it maybe

necessary for those of us who are alive today, particularly those of us living in the more

affluent societies, to curb our level of material consumption in order to avoid an even

more drastic decline in the consumption levels of future generations. This is not a

welcome message to societies that have found it difficult to discover principled reasons

for the contempora~ transfer of resources across political boundaries in support of

efforts to narrow the level of living between rich and poor nations or rich and poor

people (Ruttan, 1989).

Our historical experience, at least in the West, often causes us to be skeptical

about our obligations to future generations. It was less than a generation ago that

Robert Solow, one of our leading growth theorists, noted in his Richard T. Ely address

to the American

of our ancestors,

5

Economic Association: “We have actually done quite well at the hands

Given how poor they were and how rich we are, they might properly

have saved less and consumed more” (Solow, 1974, p. 9). In most of the world the

ancestors have not been so kind!

be left to either market forces

societies.

In spite of its challenge

or

to

This suggests that the future may be too important

historical accident - even for the more affluent

current levels of consumption in the developed

to

countries it is hard to avoid a conclusion that the popularity of the Bruntland

Commission definition is due, at least in part, to the fact that the definition is so broad

that it is almost devoid of operational significance. The sustainability concept has

undergone what has been referred to as “establishment appropriation” (Buttel and

GilIespie, 1988). It is now experiencing the same “natural history” as earlier reform

efforts. Initially a “progressive” rhetoric is advanced by critics as a challenge to the

legitimacy of dominant institutions and practices. If the groups and symbols involved are

sufficiently threatening to the dominant institutions, these institutions will attempt to

respond to these challenges by “appropriating” or embracing the symbol themselves. “In

so doing these dominant institutions - such as the World Bank and the agricultural

universities - are typically able to demobilize the movement” (Buttel, 1991, p. 7).

Buttel argues that sustainability has been embraced both by radical reformers and

neo-conservatives because it removes the focus from achieving greater participation of

the poor in the dividends from economic growth to protecting an impersonal nature from

the destructive forces of growth (Buttel, 1991, p. 9). Runge (1992) presents a more

6

positive perspective on the move by the traditional agricultural and development

communities to embrace the sustainability concept. He visualizes sustainability as an

integrative concept that can facilitate the synthesis of the research and policy agendas of

the environmental, agricultural and development communities.

Sustainable Agricultural Systems in History

It is not uncommon for a social movement to achieve the status of an ideology

while still in search of a methodology or a technology. If the reform movement is

successful in directing scientific and technical effort in a productive direction it becomes

incorporated into normal scientific or technical practice. If it leads to a dead end it slips

into the underworld of science often to be resurrected when the conditions which

generated the concern again emerge on the social agenda.

Research on new uses for agricultural commodities is one example. It was

promoted in the 1930s under the rubric of chemurgy and in the 1950s under the title of

utilization research as a solution to the problem of agricultural surpluses. It lost both

scientific and political credibility because it promised more than it could deliver. It

emerged again in the late 1970s and early 1980s in the guise of enhancing “value added.”

Integrated pest management represents a more fortunate example. This term emerged

in the 1960s as an alternative to chemical intensive pest control strategies and was

appropriated in the 1970s as a rhetorical device to paper over the differences between

ecologically oriented and economically oriented entomologists (Palladino, 1989). At the

time the terminology was adopted there were few pest control technical packages that

could credibly be regarded as either technologically or economically viable “integrated

7

pest control technologies. After two decades of scientific research and technology

development there are now packages of practice which come closer to meeting the

definition of integrated pest management as visualized by those who had coined the

terminology.

In the case of sustainable agricultural systems we are able to draw on several

historical examples of systems that proved capable of meeting the challenge of achieving

sustainable increases in agricultural production. One example is the forest and bush

fallow (or shifting cultivation) systems practiced in most areas of the world in pre-

modern times and today in many tropical areas (Pingali et al., 1987). At low levels of

population density, these systems were sustainable over long periods of time. As

population density increased, short fallow systems emerged. Where the shift to short

fallow systems occurred slowly, as in Western Europe and East Asi~ systems of farming

that permitted sustained growth in agricultural production emerged. Where the4

transition to short fallow has been forced by rapid population growth the consequence

has often been soil degradation and declining productivity.

A second example can be drawn from the agricultural history of East Asian wet

rice cultivation (Hayami and Ruttan, 1985). Traditional wet rice cultivation resembled

farming in an aquarium. The rice

Most of what was produced, straw

grew tall and rank; it had a low grain-to-straw ratio.

and grain, was recycled in the form of human and

animal manures. Mineral nutrients and organic matter were carried into and deposited

in the fields with the irrigation water. Rice yields rose continuously, though slowly, even

under a monoculture system.

8

A third example of sustainable agriculture was the system of integrated crop-

animal husbandry that emerged in Western Europe in the late middle ages to replace the

medieval two- and

husbandry” system

three-field systems (Van Bath, 1963; Boserup, 1965). The “new

emerged with the introduction and intensive use of new forage and

green manure crops. These in turn permitted an increase in the availability and use of

animal manures. This permitted the emergence of intensive crop-livestock systems of

production through the recycling of plant nutrients in the form of animal manures to

maintain and improve soil fertility.3

The three systems that I have described, along with other similar systems based

on indigenous technology, have provided an inspiration for the emerging field of

agroecology. But none of the traditional systems, while sustainable under conditions of

slow growth in demand, has the capacity to respond to modern rates of growth in

demand generated by some combination of rapid increase in population and in growth of

income. Some traditional systems were able to sustain rates of growth in the 0.5-1.0

percent per year range. But modem rates of growth in demand are in the range of 1.O-

2.0 percent per year in the developed countries. They often rise to the range of 3.0-5.0

percent per year in the less developed and newly industrializing countries. Rates of

31n his study of sustainable agriculture in the middle ages Jules N. Pretty notes that “Manorial estatessurvived many centuries of change and appear to have been highly sustainable agricultural systems. Yet thissustainability was not achieved because of high agricultural productivity - indeed it appears that farmers weretrading off low productivity against the more highly valued goals of stability, sustainabfity and equitability.These were promoted by the integrated nature of farming the great diversity of produce, including wildresourcev the diversity of livelihood strategies; the guaranteed source of laboq and the high degree ofcooperation: (Pretty, 1990, p. 1).

9

growth in demand in this range lie outside of the historical experience of the presently

developed countries!

In the presently developed countries the capacity to sustain the necessary

increases in agricultural production will depend largely on our capacity for institutional

innovation. If our capacity to sustain growth in agricultural production is lost, it will be a

result of political and economic failure. It is quite clear, however, that the scientific and

technical knowledge is not yet available that will enable farmers in most tropical

countries to meet the current demand their societies are placing upon them nor to

sustain the increases that are currently being achieved. Further, the research capacity

has not yet been established that will be necessary to provide the knowledge and the

technology. In these countries, achievement of sustainable agricultural surpluses is

dependent on advances in scientific knowledge and on technical and institutional

innovation (TAC/CGIAR, 1989).

The Technological Challenge to Sustainability

One might ask why concern about the sustainability of modern agricultural

systems has emerged with such force toward the end of the 21st century? The first

reason is the unprecedented demands that growth of population and income are

imposing on agricultural systems. We are in the process of completing one of the most

remarkable transitions in the history of agriculture. Prior to the beginning of this century

almost all increases in food production were obtained by bringing new land into

production. This process of growth in agricultural production within the framework of

what has been termed the “resource exploitation” model clearly is no longer sustainable.

10

By the first decades of the next century almost all increases in food production must

come from higher yields - from increased output per hectare. In most countries of the

world the transition from a resource - based to a science-based system of agriculture is

occurring within a single century, In a few countries this transition began in the 19th

century. For most of the presently developed countries it did not begin until the first

half of this century. Most of the countries of the developing world have been caught up

in this transition only since mid-century. Among developing countries this transition has

proceeded further in South and Southeast Asia than in Latin America or Africa.

Historical trends in the production and consumption of the major food grains

could easily be taken as evidence that one should not be excessively concerned about the

capacity of the worlds farmers to meet future food demands. World wheat prices have

declined since the middle of the last century. Rice prices have declined since the middle

of this century. These trends suggest that productivity growth has been able to more

than compensate for the rapid growth in demand arising out of growth in population and

income, particularly during the decades since World War 11. But the past may not be an

effective guide to the future. The demands that the developing countries will place on

their agricultural producers arising out of population growth and the growth in per capita

consumption will, until well into the middle of the next century, be exceedingly high.

A second reason for concern about sustainability is that the sources of future

productivity growth are not as apparent as we move toward the early years of the 21st

century as they were a quarter century ago. It seems apparent that the gains in

agricultural production required over the next quarter century will be achieved with

11

much greater difficulty than inthe immediate past (Ruttan, 1989; 1993). The

incremental responses to the increases in fertilizer use has declined. Expansion of

irrigated areas has become more costly. Maintenance research, the research required to

prevent yields from declining, is rising as a share of research effort (Plucknett and Smith,

1976). The institutional capacity to respond to these concerns is limited, even in the

countries with the most effective national agricultural research and extension systems.

And during the 1980s there had been considerable difficulty in many developing

countries in maintaining the agricultural research capacity that had been established in

the 1960s and 1970s (Cummings, 1989; Either, 1993).

It is possible that within another decade, advances in basic knowledge will create

new opportunities for advancing agricultural technology that will reverse the urgency of

some of the above concerns. Institutionalization of private sector agricultural research

capacity in some developing countries is beginning to complement public sector capacity

(Pray, 1987). Advances in molecular biology and genetic engineering are occurring

rapidly. But the date when these promising advances will be translated into productive

technology appears to be receding!

It is only a slight overstatement to note that advances in crop yields have come

about primarily by increasing plant populations per hectare and the ratio of grain to

straw. Advances in animal feed efficiency have come about primarily by decreasing the

proportion of feed consumed that is devoted to animal maintenance and by increasing

4For an argument that the results of genetic engineering ean be expected to underminesustainablemethods of farming see Richard Hindmarsh (1991).

12

the proportions devoted to

physiological constraints to

These constraints are most

the production of usable animal products. There are severe

continued improvement along these conventional paths.

severe in the areas that have already achieved the highest

levels of productivity as in Western Europe, North America and parts of East Asia.

Advances in conventional technology will be inadequate to sustain the demands that will

be placed on agriculture as we move beyond the second decade of the next century.

It seems reasonable to anticipate, however, that advances in molecular biology

and genetic engineering will release the constraints on productivity growth in the major

food and feed grains. But advances in agricultural technology will not be able to

eliminate what some critics tend to view as a “subsidy” from outside the agricultural

sector. Transfers of energy in the form of mineral fuels, pathogen and pest control

chemicals, and mineral nutrients from outside the agricultural sector will continue to be

needed to sustain growth in agricultural production - and in much larger quantities -

until well into the middle of the next century. Until population and total demand growth

rates fall below one percent per year, energy transfers can be expected to continue to

expand. Over the very long run scarcity, reflected in rising real prices, of phosphate

fertilizer and fossil fuels are likely to become the primary resource constraints on

sustainable growth in agricultural production (Chapman and Barker, 1991; Desai and

Gandhi, 1990).

This leads to what appears, in my reading of the evidence, to what ought to be the

primary concern about the sustainability of growth in agricultural production. This third

set of concerns is with the environmental spillover from agricultural and industrial

intensification. The spillover

soil resources due to erosion,

13

effects from agricultural intensification include the loss of

water-logging and salinization, surface and groundwater

contamination from plant nutrients and pesticides, resistance of insects, weeds and

pathogens to present methods of control, and the loss of landraces and natural habitats

(Conway and Pretty, 1991). If agriculture is forced to continue to expand into more

fragile environments because of lack of technical progress in more robust soil resource

areas, problems such as soil erosion and desertification can be expected to become more

severe. Additional deforestation will intensify problems of soil erosion, species

degradation of water quality and contribute to the forcing of climate change.

loss,

The sustainability of agricultural production will also be influenced by the impact

of continued intensification of industrial and transportation systems. There can no

longer be much doubt that the accumulation of carbon dioxide (COJ and other

greenhouse gases - principally methane (CH.J, nitrous oxide (N@) and

chlorofluorocarbons (CFC’S) has set in motion a process that will result in a rise in

global average surface temperature over the next 30-60 years. There continues to be

great uncertainty about the temperature and rainfall changes that can be expected to

occur at any particular date or location. But these changes can be expected to impose

substantial adaptation demands on agricultural systems. The systems that will have the

least capacity to adapt will be in countries with the weakest agricultural research and

natural resource management capacity - principally in the humid and semi-arid tropics

(Ruttan, 1992). The effects of industrial intensification can also be expected to impose

substantial health burdens on agricultural producers and consumers. The effects of

14

heavy metal contamination has already affected the quality of crops and of animal and

human health in a number of areas.

Sustainability is Not Enough

It should be apparent that a major issue over the next half-century for most

developing countries, including the formerly centrally planned economies, will be how to

generate and sustain the advances in agricultural technology that will be needed to meet

the demands that these societies will place on these agricultural sectors. This objective

appears to be in direct conflict with the world view of many of the leading advocates of

sustainable development.

“Sustainable development” is a concept that implies limits, both to the assimilative

capacity of the environment and to the capability of technology to enhance human

welfare. To the sustainable development community the capacity of the environment to

assimilate pollution from human production and consumption activity is the ultimate

limit to economic growth” (Batie, 1989, p. 1085). But this is not a problem that has

emerged ordy during the second half of the 20th century:

I differ in one fundamental respect from those who are advancing the

sustainability agenda. It seems clear to me the capacity of a society to solve either the

“’Man has throughout history been continuously challenged by the twin problems of (a) how to providehimself with adequate sustenance and (b) how to manage the d~posal of what in recent literature has beenreferred to as “residuals.” Failure to make balanced progress along both fronts has at times imposed seriousconstraints on societies growth and development. The current environmental crisis represents one of thoserecurring times in history when technical and institutional change in the management of residuals has laggedrelative to progress in the provision of sustenance, conceived in the broad sense of the material componentsof consumption. Furthermore, in relatively high income countries the demand for commodities and servicesrelated to sustenance is low and declines as income continues to rise, whale the income elasticity of demandfor more effective disposal of residuals and for environmental amenities is high and continues to rise. This isin sharp contrast to the situation in poor countries where the income elasticity of demand is high forsustenance and low for environmental amenities.” (Ruttan, 1971, p. 707).

15

problem of sustenance or the problems posed by the production of residuals is inversely

related to population density and the rate of population growth and is positively related

to its capacity for innovation in science and technology and in social institutions (Ruttan,

1971, p. 788). I am exceedingly concerned that the bilateral and multilateral assistance

agencies, in their rush to allocate resources in support of a sustainability agenda derived

more from developed country than developing country resource and environmental

priorities, will fail to sustain the effort needed to build viable agricultural research

institutions in the tropics.

Africa, in particular, has been the victim of a succession of donor enthusiasms--

integrated rural development, farming systems research, agro-forestry programs and

others-- for which program rhetoric has preceded the technical and institutional

knowledge and capacity necessary for program implementation. Sustainable

development is now high on the agenda of many donor agencies.

technology does not exist in most African agro-ecological regions

Yet it is clear that the

to assure sustainable

growth in agricultural production at the rates of growth in demand, arising out of

population and income growth, that most African societies are imposing on their farmers.

Within Africa the technologies necessary to achieve sustainability will vary spatially and

temporally (Spencer and Polsong, 1991; Webb et al., 1991; Matlon and Adesin% 1991),

One of the most difficult problems, particularly in humid and sub-humid Africa, is how

to supply and maintain adequate organic matter on the ground and in the topsoil in

those areas where intensive animal agriculture is not feasible. Elements of sustainable

systems are available from traditional systems. Others are becoming available from the

16

national and international research systems in the region. These include such practices

and components as (a) leguminous cover crops, (b) ally farming with leguminous trees;

(c) biological pest control, (d) host plant resistance to disease, and (e) improved maize,

cassav~ cowpe~ plantain and other cultivars. While some of the new practices and

technologies are technically viable they are often not economically viable. Inadequate

physical and institutional infrastructure - transport and markets, for example - often

impose a severe burden on use of even the most viable sustainable practices.

Three Unresolved Analytical Issues

In this section I identi~ three unresolved analytical issues that must be confronted

before a commitment to sustainability can be translated into an internally consistent

reform agenda.

The Issue of Substitutabilitv

One area where our knowledge is inadequate is with respect to the role of

technology in widening the substitutability among natural resources and between natural

resources and reproducible capital. Economists and technologists have traditionally

viewed technical change as widening the possibility of substitution among resources - of

fertilizer for land, for example (Solow, 1974; Goeller and Weinberg, 1976). The

sustainability community rejects the “age of substitutability” argument. The loss of plant

genetic resources is viewed as a permanent loss of capacity. The elasticity of substitution

among natural factors and between natural and man-made factors is viewed as

exceedingly low (James et al., 1989; Daly, 1991). When considering the production of a

17

particular commodity-for example the substitution of fertilizer for land in the production

of wheat-this is an argument over the form of the production finction. But substitution

also occurs through the production of a different product that performs the same

function or fills the same need-of fiber optic cable for conventicmal copper telephone

wire or of fuels with higher hydrogen to carbon ratios for coal, for example.

The argument about substitutability, while inherently an empirical issue, is

typically argued on theatrical or philosophical grounds. It is passable that historical

experience or advances in futures modeling may lead toward some convergence of

perspectives. But the scientific and technical knowledge needed to fully resolve

disagreements about substitutability will always lie in the future. Yet the issue is

exceedingly important. If a combination of capital investment and technical change can

continuously widen opportunities for substitution, imposing constraints on present

resource use could leave future generations less well

output per unit of natural resource input is narrowly

off. If, on the other hand, real

bounded -cannot exceed some

upper limit which is not to far from where we are now -then catastrophe is unavoidable.

Obli~ations Toward The Future

The second issue is one that has divided traditional resource economists and the

sustainability community.

obligations of the present

That is the issue of how to deal analytically with the

generation toward future generations. The issues of

intergenerational equity is at the center of the sustainability debate (Pearce et al., 1990;

Solow, 1991). Environmentalists have been particularly critical of the approach used by

resource and other economists in valuing future benefit and cost streams. The

18

conventional approach involves the calculation of the “present value” of a resource

development or protection project by discounting the cost and benefit stream by some

“real” rate of interest - an interest rate adjusted to reflect the costs of inflation. It is

World Bank policy (but not always practice) to require a 10-15 percent rate of return on

projects. These higher rates are set well above long term real rates of interest

(historically less than 4 percent) in order to reflect the effect of unanticipated inflation

and other risks associated with project development and implementation. An attempt is

made in this way to avoid unproductive projects.

The critics insist that this approach results in a “dictatorship of the present” over

the future. At conventional rates of interest the present value of a dollar of benefits

fifty years into the future approaches zero. “Discounting can make molehills out of even

the biggest mountain” (Batie, 1989, p. 1092). Solow has made the same point in more

formal terms. He notes that if the marginal profit - marginal revenue less marginal

cost - to resource owners rises slower than the rate of interest resource production and

consumption is pushed nearer in time and the resource will be quickly exhausted (Solow,

1973, p. 3; Lipton, 1991).

A question that has not been adequately answered is if, as a result of the adoption

of a widely held sustainability “ethic,” the market determined discount rates would

decline toward the rate preferred by those advancing the sustainability agenda.b Or will

%he question of the impact of the use of a positive discount (or interest) rate on resource exploitationdecisions is somewhat more complex than often implied in the sustainability literature. Simply lowering thediscount rate to favor the natural resource sector will not assure slower exploitation of natural resources ifthe market rate of interest remains high. Recipients of the lower interest rates may transfer the revenuefrom resource exploitation to investments that have higher rates of rqturn rather than reinvesting to sustainthe flow of resource benefits. Furthermore, high rates of resource exploitation can be consistent with either

19

it be necessary to impose sumptuary regulations -constraints on current consumption- in

an effort to induce society to shift the income distribution more strongly toward future

generations? It is clear, at least to me, that in most countries efforts to achieve

sustainable growth in agricultural production must involve some combination of (a)

higher contemporary rates of saving - that is deferring present in favor of future

consumption, and (b) more rapid technical change - particularly the technical changes

that will enhance resource productivity and widen the range of substitutability among

resources.’ But will this be enough? I suspect not! What should be done given the

inability of economic theory to provide satisfactory tools to deal analytically with

obligations toward the future? My own answer is that we should take a strategic

approach to the really large issues - how much should we invest to reduce the probability

of excessive climate change, for example. We should continue to employ conventional

cost benefit analysis to answer the smaller questions, such as when to develop the

high or low interest rates. in the case of forest exploitation, for example, a low discount rate favors lettingtrees grow longer and the planting of trees which take longer to grow. In the other hand a low discount ratewill make it profitable to invest in mineral exploitation, land and water development or other investmentprojects, that might otherwise be unprofitable, That is why, in the past, resource economists andenvironmentalkts have argued in favor of higher interest rates on public water resource projects. (Norgaard,1991; Price, 1991; Graham-Tomasi, 1991). As an alternative to lower discount rates, Mikesell (1991) suggeststaking resource depletion into account in project cost benefit analysis. For a useful commentary on thedebate about the effects of high and low interest rates oxi sustainability see Lipton (1991).

‘Norgaard and Howarth (1991) and Norgaard (1991) argue that decisions regarding the assignment ofresource rights among generations should be made on equity rather than efficiency grounds. When resourcerights are reassigned between generations interests rates will change to reflect the intergenerationaldistributions of resource rights and income, I interpret these arguments as saying that if present generationsadopt an ethic that causes them to save more and consume lest the income distribution will be tilted in favorof future generations. This is, however, not the end of the story. A decline in marginal time preference has

kthe effect of lowering the rate of interest. Improvement in investment opportunities resulting for example,from technical change will have the effect of increasing the demand for investment and thus raising interestrate (Hirshleifer, 1970, pp 113-116).

20

drainage systems needed to avoid excessive build-up of water logging and salinity in an

irrigation project.

Incentive om~atible Institutional Desire

A third area where knowledge needs to be advanced is on the design of

institutions that are capable of internalizing--within individual households, private firm

and public organization--the costs of actions that generate the negative spillover effects -

the residuals - that are the source of environmental stress. Under present institutional

arrangements important elements of the physical and social environment continue to

undervalued for purposes of both market and non-market transactions. Traditional

production theory implies that if

undervalued it will be overused.

absorb pollutants for example, is

the price to a user of an important resource is

If the price of a factor, the capacity of groundwater

zero it will be used until the value of its marginal

be

to

product to the user approaches

large social costs on society.

zero. This will be true even though it may be imposing

The dynamic consequence of failure to internalize spillover costs are even more

severe. In an environment characterized by rapid economic growth and changing relative

factor prices failure to internalize resource costs will bias the direction of technical

change. The demand for a resource that is priced below its social cost will grow more

rapidly than in a situation where substitution possibilities are constrained by existing

technology. As a result “open access” resources will undergo stress or depletion more

rapidly than in a world characterized by a static technology or even by neutral (unbiased)

technical change.

21

The process is clearly apparent in agriculture. In the United States federal farm

programs encourage farmers to grow a small group of selected program crops, to grow

these crops on a continuous basis, and to use more chemical intensive methods in

production (General Accounting Office, 1990). Over the long-run one effect of U.S., EC

and Japanese agricultural commodity programs has been to bias the direction of

technical change by making land more expensive. Until very recently the capacity of the

environment to absorb the residuals from crop and livestock production has been treated

as a free good. As a result, scientific and technical innovation in both the public and

private sectors has been overly biased toward the development of land substitutes - plant

nutrients and plant protection chemicals and management systems that reflected the

overvaluation of land and the undervaluation of the social costs of the disposal of

residuals from

same biases in

agricultural production processes. In retrospect it seems apparent that the

factor prices have led to underinvestment in technological effort directed

toward pest and soil management systems consistent with the social value of

environmental services (Runge et al., 1990).

The design of incentive compatible institutions - institutions capable of achieving

compatibility between individual, organizational and social objectives - remains at this

stage an art rather than a science. The incentive compatibility problem has not been

solved even at the most abstract theoretical level.8 This deficien~ in institutional design

capacity is evident in our failure to design institutions capable of achieving contemporary

%he concept of incentive compatibility was introduced in a 19’72paper by Hurwicz (19’72). In thatpaper he showed that it was not possible to speci~ an informationally decentralized mechanism for resourceallocation that simultaneously generates efilcient resource allocation and incentives for consumers to honestlyreveal their true preferences. For the current state of knowledge in this area see Groves et al. (19S7).

22

distributional equity, either within countries or among rich and poor countries. It

impinges with even greater force on our capacity to design institutions capable of

achieving intergenerational equity.

An Uncertain Future

In closing I would like to emphasize how far we are from being able to design

either an adequate technological or institutional response to the issue of how to achieve

sustainable growth in agricultural production - or in the sustainable growth of both the

sustenance and the amenity components of consumption.

At present there is no package of technology that is available to transfer to

producers that can assure the sustainability of growth in agricultural production at a rate

that will enable agriculture, particularly in the developing countries, to meet the

demands that are being placed on them.9 Sustainability is appropriately viewed as a

guide to future agricultural research agendas rather than as a guide to practice (Rutta~

1988; Graham-Tomasi, 1991). As a guide to research it seems useful to adhere to a

definition that would include: (a) the development of technology and practices that

maintain and/or advance the quality of land and water resources, and; (b) the

improvement in the performance of plants and animals and advances in production

9There is a large literature in agronomy, agricultural economics and related fields that reports onresearch designed to develop or transfer sustainable agricultural practices, some of this research is reportedin the papers in this volume. For other examples see Board on Agriculture, National Research Council(1991); Board on Agriculture and Board on Science and Technology for Development (1992). See also thebibliography by Rosenberg and Eisgruber (1992). Much of the evidence presented in such studies representsprogress reports on preliminary results from experiments or trials that are, of necessity, long term in nature.The value I place on such studies is consistent with my comments above that in the absence of clarity aboutthe concept of sustainable agricultural development it is important that we “approach the issue oftechnological and institutional design pragmatically.”

23

practices that will facilitate the substitution of biological technology for chemical

technology. The research agenda on sustainable agriculture needs to explore what is

biologically feasible without being excessively limited by present economic constraints.

At present the sustainability community has not been able to advance a program

of institutional innovation or reform that can provide a credible guide to the organization

of sustainable societies. We have yet to design the institutions that can assure

intergenerational equity, Few would challenge the assertion that future generations have

rights to levels of sustenance and amenities that are at least equal to those enjoyed (or

suffered) by the present generation. They also should expect to inherit improvements in

institutional capital - including scientific, and cultural knowledge - needed to design more

productive and healthy environments.

My conclusion with respect to institutional design is similar to that which I have

advanced in the case of technology. Economists and other social scientists have made a

good deal of progress in contributing the analysis needed for “course correction.” But

capacity to contribute to institutional design remains limited. The fact that the problem

of designing incentive compatible institutions - institutions capable of achieving

compatibility between individual, organizational and social objectives - has not been

solved at even the most abstract theoretical level means that institutional design

proceeds in an ~ hoc trial and error basis - and that the errors continue to be

expensive. Institutional innovation and reform should represent a high priority research

agenda.

24

“Had we but world enough, and time,

defining sustainable development, Professor,

were no crime” John Donne,

“To my coy mistress: (adapted by James Wlnpenny)

25

Batie,

Board

Board

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35

Appendix 1

Definitions of Sustainability

Ecological Sustainability

1. “Sustainable agriculture is both a philosophy and a system of farming. Sustainable

agricultural systems rely on crop rotations, crop residues, animal manures,

legumes and green manures, off farm organic wtwtes, appropriate mechanical

cultivation and mineral bearing rocks to maximize soil biological activity, and to

maintain soil fertility and productivity. Natural, biological and cultural controls

are used to manage pests, weeds and diseases . . . We can no longer go on

pretending that the energy dependent, environmentally destructive systems of the

past can be passed on as sustainable agriculture” (Hill, 1990, quoted in Imyns and

MacMillan, 1990).

2. “Alternative agriculture is any system of food or fiber production that

systematically pursues the following goals: more thorough incorporation of

natural processes such as nutrient cycles, nitrogen fixation, and pest-predator

relationships into the agricultural production process; reduction in the use of off

farm inputs with the greatest potential to harm the environment or the health of

farmers and consumers; greater productive use of biological and genetic potemtial

of plant and animal species; improvement of the match between cropping

patterns and the productive potential and physical limitations of agricultural lands

to ensure long-term sustainability of current production levels; and profitable and

eftlcient production with emphasis on improved farm management, conservation

36

of soil, water, energy and biological resources.” (Committee on the Role of

Alternative Farming Methods in Modem Production Agriculture, 1989, p. 4).

3. A sustainable system is “...a system that can be maintained almost indefinitely in

the same site, that over the long term enhances the environment and quality of

life for farmers and society, and does not negatively affect the environmental

system.” (Gomez-Pomps et al., 1991).

4. “Sustainability should be treated as a dynamic concept, reflecting changing needs,

especially those of a steadily increasing population . . . The goal of a sustainable

agriculture should be to maintain production at levels necessary to meet the

increasing aspirations of an expanding world population without degrading the

environment. It implies concern for the generation of income, the promotion of

appropriate policies, and the conservation of natural resources” (TAC/CGIAR,

1989).

Developmental Sustainability

5. “Sustainable development is not a fixed state of harmony but rather a balanced

and adaptive process of change . . . Sustainability takes for granted a balance

between economic development - all quantitative and qualitative changes in the

economy that offer positive contributions to welfare - and ecological

sustainability - all quantitative and qualitative environmental strategies that seek

to improve the quality of an ecosystem and hence also have a positive impact on

welfare” (Nijkamp et al., 1990, p. 156).

37

6. “Sustainability has assumed particular importance because (of) the sharp drop in

living standards that has accompanied adjustment programs in many countries . . .

We term real output growth sustainable if it exceeds population growth (Faini

and de Melo, 1990, p. 496).

7. Project sustainability . . . (is) the maintenance of an acceptable net flow of

benefits from the projects’ investments after its completion - after the project

ceased to receive both financial and technical support” (Cerne~ 1987, p. 118).

8. “Sustainability can be introduced into CBA (cost benefit analysis) by setting a

constraint on the depletion and degradation of the stock of natural capital.

Essentially the economic efficacy objective is modified to mean that all projects

yield net benefits should be undertaken subject to the requirement that

environmental damage (i.e. natural capital depreciation) should be zero or

negative. However, applied at the level of each project such a requirement would

be stultifying. Few projects would be feasible. At the programme level,

however...it amounts to saying that netted out across a set of projects the sum of

individual damages should be zero or negative.” (Pearce et al., 1990, pp. 58, 59).